UBS (NYSE:UBS), which competes with Morgan Stanley (NYSE:MS), JPMorgan (NYSE:JPM), Credit Suisse (NYSE:CS), and Goldman Sachs (NYSE: GS), reported better than expected first quarter FY11 results earlier this week. Net revenues for the quarter increased by 17% from the fourth quarter of 2010 but were down 7% year over year (yoy). Pre tax profit was down 20% from the first quarter of 2010 but up 84% yoy. Investment banking showed some bright spots and the wealth management unit continued to provide an anchor to earnings growth.
We have a $20.11 price estimate for UBS, which roughly inline with the current market price.
Macro Conditions Weighed on Trading
The investment banking division weighed on the results with total investment banking revenues down 23% yoy. Though the pre-tax profit from this division was up significantly from the 4Q 2010, it was down 30% from 1Q 2010. Within investment banking, advisory services revenues were up 31% from the same period last year and capital market revenues were down 18%. In sales & trading, equities revenues were up 4%, but fixed income, currencies & commodities (FICC) revenues were down 17%. 
Sales & trading revenues were impacted by difficult trading conditions given macro events such as tsunami in Japan, political uncertainty in the Middle East, the continuing sovereign debt problems in Europe and rising inflation in many emerging markets. In the 1Q 2010, sales & trading revenues were up considerably, benefiting from a surge in volumes and liquidity across asset classes as investors turned bullish coming out of the global economic downturn. However, in the later half of the year uncertainty over trading regulations in the U.S. and the sovereign debt crisis in Europe spread.
(Chart created by using Trefis' app)
Wealth Management Continuing to Impress
The wealth management division did relatively well as pre tax profit (which includes our Swiss clients, international clients and Americas clients divisions) was relatively flat from the same period last year. Fund flows have improved over the past year, in part due to new client money, especially from Asia. Inflows into the wealth management division this quarter has been the highest over the last 3 years. 
Inside wealth management, we estimate that international clients (non-U.S. and not Swiss) are the most valuable for UBS, contributing around 22% to its stock price. The strong performance of this division has been driven lately by an inflow of client money from emerging markets, which has contributed to increasing assets under management for this division.
Going forward, we expect the asset under management for this division to continue increasing. If by the end of our forecast period, the assets under management for this division are around 20% higher than our current estimates, it would result in an upside of around 7% to our current price estimate for UBS’s stock.